Bitcoin

Everything you need to know, with no technobabble

I worked for a few months at a company that does a bunch of services related to Bitcoin. I was kind of surprised when I answered the usual, "So, what do you do?", at how many people would then follow up with all sorts of questions about how Bitcoin works and whether or not they should buy some. Bitcoin is this thing that's kind of in the air, it gets mentioned in the news, usually in connection with some kind of shady hacker crime type stuff, and people have a vague notion that Bitcoin might be important but without a clear idea of how or why.

I ended up not working at the company for too long, but, the time I was there was like an intensive crash course in the world of Bitcoin. Every day I had new questions and answers. I'm now an owner of Bitcoins and would like to see Bitcoin become more mainstream, and so I'm offering up this article as a summary of what I would say to anyone who asked me about Bitcoin.

What is it?

Like a lot of technical things, the people who know most about it are often the worst at explaining it. Ask a lot of people involved in Bitcoin and they'll very enthusiastically describe it to you in completely incomprehensible gobbledygook. Let me take a shot at breaking it down for you without adding a single new word to your vocabulary.

You could run a sort of Bitcoin style system of money of your own right now if you wanted, with no computers or anything. If you had a small group of people who wanted to set up their own kind of currency, but didn't want to use pieces of metal or paper, there's another option. Take a big stone tablet in the town square, and carve into it every transaction that happens between everyone. To kick it off, you decide on a unit of currency, call them "tablet bucks" or whatever, and decide how much of them are going to exist for everyone to use. Then divvy them up among everyone in your group using whatever way you think is fair, and you're off and running. Every time someone buys or sells something, exchanges tablet bucks, you mark it down on the big stone tablet so it's recorded forever and can't be changed. Boom. You just created a Bitcoin-esque system with stone age technology.

Of course, while possible in theory, you can immediately see some huge problems with using a stone tablet that make it a really stupid way to run a currency. One being that with every transaction, every coffee bought, even a small group of people would run out of room on the big stone tablet pretty much right away. Not to mention all the constant math and chiselling. For a whole country? Forget about it. The other problem is that you probably wouldn't want everything you ever bought displayed for everyone to see, like all that porn you buy.

For almost all of human history, the stone tablet system would simply be unworkable. But, now we have computers, which make it possible to do what the core of the system is really all about, which is recording all the money activity altogether. Computers love nothing more than to sit around all day doing calculations on numbers, so that's the bulk of work taken care of right there. Also, instead of putting your name to every piece of porn you buy, you can get a code that makes the record of the porn you bought more private.

Add the internet in, and the system really takes off, because you don't have to go to the public square to see the official stone tablet, or big computer screen, or whatever. Data can exist in many places at once so you can carry around an app on your phone which keeps you connected to the big record of transactions wherever you are.

Computers and the internet also take it further by making backups of everything so that there isn't just one stone tablet that could get destroyed in an earthquake. Not only is the big record of all transactions copied and duplicated all over the place so there's no danger of losing data, but with all those copies you can compare and contrast all the records so no one can try and cheat by adding or moving more money for themselves. Everyone's records have to agree all the time, and anyone doing their own thing is promptly told by the computers to fuck right off. That's one of the best things about the system. The computers don't care. No government can manipulate it, you don't need permission from a bank to use it, no human acts as a middleman in anything you do.

That's basically Bitcoin. Obviously it gets a lot more complicated if you want to understand it as more than a metaphor. The way codes are assigned to people and transactions to maintain privacy, how the records are compared to ensure everyone is playing fair, how transactions between two people are verified, and how the system is optimized so all the necessary math is done lickety split, are all topics that you can grasp at the level that suits you by going out and researching them. I'm just here to create a model that helps you get over the first step of wondering what the fuck is going on.

Do you want some Bitcoin?

Why does anyone buy Bitcoin? Imagine there was a day before the US government started printing dollars, and they announced that before they made the currency official, they were going to put the dollars on sale for half price. You could buy a US dollar for fifty cents, and then the day the dollar went live, you've doubled your money.

That's the situation many people think Bitcoin is in. One day, many believe, it's going to be a common way to use money both on the internet and put in the real world in general. When that day comes, the value of Bitcoin will be set by real world transactions, the way all money should be valued in theory. Until then, though, many think that it's being sold for a lot less than what it will be worth when it goes mainstream.

What's different from Bitcoin's situation and my hypothetical US dollar sale, though, is that Bitcoin doesn't have anyone like the US government who can say with authority, "This money is going to be official, and everyone in our country has to accept it as payment." Bitcoin will only go mainstream if enough people around the world start to agree to use it. Which may or may not happen. More and more people keep coming on board to the idea that Bitcoin has a future, and the more people getting involved and willing to buy makes the price go up, as does anything that has a demand. However, none of the current activity is a guarantee of anything. it's also entirely possible that Bitcoin could fall apart for many different reasons.

Bitcoins, chickens, and eggs

Money has no value unless you spend it. So long as Bitcoin is just this thing that people buy with their dollars or Euros or yen just to cash out one day when everyone else starts using it, then it's just a big circle jerk of people buying and selling it amongst themselves. At worst, if Bitcoin never goes mainstream, you could even look at it as a kind of Ponzi scheme that only benefits those who sell it off before it runs out of steam.

For Bitcoin to go from something with potential to a real currency, people have to actually use it, to buy your daily coffee and pay your rent. And all that porn you're into. But, people don't want to use it so much right now because its value keeps going up as more people want in. Let's say you buy a five dollar coffee with Bitcoin. That amount of Bitcoin could be worth twice as much a few months from now. It could maybe even be worth a hundred dollars a few years from now. Do you want to give up on a hundred dollars a year from now for a five dollar coffee today?

So Bitcoin is caught a little bit in a chicken and egg problem. It's value is based on a future where it gets used, but that future can't come while the promise keeps pushing it's value up.

There are people in the world who want to see Bitcoin start to actually get used, but it appears they're in a minority. Seems most people are buying and holding, waiting for some revelatory tomorrow that will never come so long as all they do is hold. Some people are day trading, literally spending their days with their fingers hovering over mouse buttons to sell the highs and buy the lows. There are criminals and people on the "dark web" using Bitcoin for it's ability to transport large sums over borders and without much oversight. They still need to launder the money when they ultimately convert it into more useful dollars, but Bitcoin is way easier to extort from a victim or exchange for drugs than brown paper bags full of cash.

Somewhere well after those three groups are the people who are mostly ideologically committed to Bitcoin as a revolutionary currency system, and they work at getting merchants to accept Bitcoin, or come up with new and novel ways to use Bitcoin.

Personally, I hope that a happy medium can be reached between small transactions and holding for future profit. Sure, if you buy a coffee today, you are losing out on how much that amount of Bitcoin could be worth a year from now. But, at the same time, Bitcoin could crash down to being worth nothing if no one ever buys a coffee. Every little bit you contribute to actually using Bitcoin helps the rest of the Bitcoin you have go up in value. So I think it makes long term economic sense to sacrifice small increments on the way toward legitimacy.

So should you get involved? That's entirely up to you, and I don't judge you for whatever reason you may or may not want some Bitcoin. I'm just saying, be aware that it's way early days, and it may never amount to more than magic money. It may turn out that Bitcoin gets MySpaced by another similarly technologically advanced currency, and there are plenty of contenders. Right now Bitcoin has the most momentum and potential, but, nothing is ever certain, especially in the fickle world of the internet. Never invest more than you are willing to lose.

So you still want in?

I'd love to just be able to say to you, "go out and get some Bitcoin!" But it's not that easy at the moment. Imagine if there was some huge fight in Google and now there were two versions of Gmail. People who want to send mail just want to know which to use, but every time they ask they get all this confusing talk about why one version of Gmail is bad and the people using it are horrible people and you should only trust the good side... but both sides say the same thing, and you're thinking, "can't I just send a mail? Why does there have to be all this bullshit about versions?"

Until one day I hope to see soon, when the infighting stops and Bitcoin can be talked about with clarity, there's this unfortunate need for a long didactic explanations like what I'm about to offer you. This is a necessary evil, so that hopefully you can go forward and make your own decisions about what is bias, and what is not.

As of September 2017, there's a huge split in the world of Bitcoin, where at least two different groups disagree about how Bitcoin should work. And man, they don't just disagree, they fucking hate each other and snipe and bicker at each other constantly. The world of Bitcoin is only about ten years old, and most everyone in the community acts like it. Some people have legitimate reasons for getting frustrated at the state of affairs, but unfortunately, they often allow themselves to get pulled down to an equally immature contest of verbal hostility with their opponents, so no one comes out looking great.

Which means that wherever you start your journey of learning about Bitcoin, you're likely to land in one camp and maybe not even hear of the other, because the camp you find yourself in doesn't want you to know the other side. I have my own opinions about which way I want Bitcoin to go, but I want to try and give you an overview without getting sucked into the gravity well of a debate I'd rather just observe from orbit. I figure the best way to do that is to present both sides of the big dispute in the way they present themselves. Note that I'm not going to name any names or identify any groups, not just to stay out of ad hominem bullshit, but also because largely I really don't care about the personalities involved. There are a lot of crazy characters in the world of Bitcoin, and dwelling on their quirks is noise I don't need.

On August 1st, 2017, Bitcoin split into two different versions, one called Bitcoin Cash, and the other I'm going to call Bitcoin Regular. Nobody calls it that, which is why I'm using it, because other ways of describing it come with some baggage. Anyway, this split occurred because Bitcoin is ultimately a kind of software, the open source kind, so developers can make their own versions of it, and then people can choose to use it or not. Sometimes people make a new version when they've identified a problem or improvement, and Bitcoin has had splits before where new versions with new features were added.

In previous splits, there weren't any big controversies, so a new version would split off from the old version, and the old version would immediately die off because no one needed or wanted it anymore. Thus, in the past, splitting and upgrading were effectively synonymous. This time was different, because there was this multi-year lingering disagreement about how Bitcoin should proceed. There was a lot of negotiation between different factions to come to a resolution, and they even managed to get to an agreement. That agreement was to do an upgrade in November of 2017 that was basically a compromise between the two factions. Like all compromises, though, neither side was thrilled about the terms.

At some point after that agreement, some developers said fuck it, we don't like the new compromise version that's coming in November, so lets just make the version we really want, and see what happens. That's the version that got made for August, and it's called Bitcoin Cash.

What's the difference between Bitcoin Cash and the ol' Bitcoin Regular? It all has to do with the size of data that is passed around. Even though computers are better than stone tablets for handling big data, everybody's Bitcoin transactions from all over the world is a serious fuck-ton of information, and it has to be handled with care. Bitcoin deals with the volume of information by dividing the data up into portions so that you don't have to recalculate the whole history of all transactions over and over all the time. The math they use is to do this is extremely clever and also extremely complicated, so just go with me that this is how it works.

One side thinks that the size of these portions needs to be restricted to small manageable sizes so they can be passed around and stored more easily. They fear that if data sizes aren't restricted, then only people with super huge computers, like big companies and governments, would be able to handle the whole thing. If control is in too few hands, then people could potentially start trying to manipulate Bitcoin to their own ends. Pretty much everyone in the world of Bitcoin agrees that centralization is a bad thing, though they disagree about where the dangers of centralization are.

In any case, there's a problem in restricting the data sizes in that the amount of people using Bitcoin is always going up, and so the activity is always increasing. How do you handle increasing activity while holding data portions down to a fixed size? Their answer is to add on additional services alongside Bitcoin so that only certain critical data needs to be stored in the Bitcoin system itself. In this model, Bitcoin isn't used directly by people like you and me. Instead, we'd use other services which would in turn connect to Bitcoin. Also, because data size on Bitcoin is held down, that means there's more competition to be allowed to use it. The competition makes fees to use Bitcoin go up. High fees always sound like a bad thing, but the supporters of this say it's a good thing because that pays the people who keep people running bitcoin and ensures it's smooth operation. And since you and I aren't directly using it anyway, our fees would be diluted into the services layered on top of Bitcoin that we would use.

The other side of the big debate thinks that the data size is not really a problem. Computer storage, speed, and connectivity is constantly going up, so there's no danger of Bitcoin being centralized and controlled by people with bigger computers than than the rest of us. They think there's simply no need to restrict the amount of data going around. In essence, what makes Bitcoin Cash different from Bitcoin Regular is that it handles large data sizes without the need for any additional services. Also, because data sizes have no restrictions, there's less competition for anyone's transactions to be included in the data, so fees to use it are lower. The supporters of this side say that it's fine if individual fees are lower because the overall volume is so high that people who do the back end support will still get paid plenty for their efforts, thus ensuring Bitcoin keeps running smoothly.

Even in describing those two sides with the most positive and broad terms I can is almost certainly going to have some people maniacally decrying me as some heretic one way or the other. Probably if I've done my job right, both sides will hate the way I've described them.

Me, personally

I originally looked into Bitcoin a few years ago, long before I worked at the Bitcoin company, because I had, and still have, a need to transfer money between my home, Tokyo, and the town I grew up, Vancouver. This one time, I transferred some money, and it cost me something really stupid, like 90 dollars. That was unusual, because of specific circumstances, so I'm not saying banks always charge this much, but, still, that's how it played out this one time. Apparently on top of the usual fees with my bank and currency exchange fees, there were intermediary banks involved or something. The fees and time it takes banks to transfer money is always unreasonable, but this time was extra bad.

Anyway, what really got me was that I made a mistake on some code on one form, and the money didn't even get transferred. They still charged me though. They could have called me up to get a correction, they could have returned the money and the fee. No, as opposed to many other consumer services who might actually recognize that you shouldn't charge for a thing that didn't happen, they charged me almost a hundred bucks to not send the money. They never even bothered to contact me to tell me shit went sideways, I had to call them when I saw that the amount I wanted to send was back in my account a week later. Fuck banks.

I looked around for other options for moving money around. I'm into tech stuff, so I had a vague awareness of Bitcoin, and looked into it more at the time. That was a few years ago, though, and it didn't seem then like a reliable way to move money, so I didn't get involved with Bitcoin again until recently when I got some work related to it.

So, with that backdrop from my life, you might be able to predict my stance on the future of Bitcoin. Let's just say that the supporters of Bitcoin Regular are right, the ones who want to restrict the data sizes. Let's agree for the moment that the only way Bitcoin can and should work is for Bitcoin to become a settlement system where you and I don't use it directly, but instead we use intermediary services. If that's the case... then I, personally, am completely bored by the prospect. What's the point of developing all this incredibly sophisticated amazing technology just to create a system that has all the layers and services and fees of banks, except maybe kind of sort of in some way incrementally better? It's like building a rocket ship capable of going to Mars and using it to travel to Paris.

If we're going to use the internet and technology to make something new happen, then I want a system that's new and revolutionizes, not merely mimics. I want fewer middle men, layers, and fees. Which is why I hope Bitcoin Cash, or a system like it, becomes the default Bitcoin. The only question is one of feasibility. Will technology continue to stay ahead of the curve so that managing Bitcoin doesn't become something that big players with supercomputers will dominate? I think it will, as it has so far, and Bitcoin Cash seems to be proof of concept that there's no inherent danger in increasing data sizes, certainly for the foreseeable future. And ideologically, I want a system that is truly peer to peer, where it's cheap for all people on Earth to participate, without having to answer to any gatekeepers.

However, just because I think Bitcoin Cash is the better technology doesn't mean it's going to win out. No one knows what's going to happen to Bitcoin, and everything moves so fast that a lot of what I've written here is bound to become obsolete in a short time.

But anyway, that's how I came to decide which Bitcoin I support. I support the one that works better for me personally, while at the same time staying aware that what I want and what will happen have very often been different in my life, so I hedge my bets accordingly. My recommendation to you is something similar. If you want to get into Bitcoin, support the one that you would like to see in the world, but let cold hard facts be your guide.

Words!

Okay, so I hope I've given you an outline of what Bitcoin is so that you can go out and find out more and do whatever. The goal was to try and tell you what you should know without giving you all sorts of technical buzz words that get in the way of a broad understanding. But that also means that pretty much the first thing you read after this, whatever it may be, is going to be speaking in completely unfamiliar terms. So, to help bridge that gap, here's a bunch'o'words! Yay!

Blockchain. This is the spine of Bitcoin and makes it all work. It's equivalent to the stone tablet I described. Except, instead of one huge monumental stone tablet, think of a big stack of tablets, where a new tablet is placed on top when the previous tablet gets full. Each tablet is a "block", and they are linked together by the math written on them in a "chain". Thus, "blockchain". A blockchain doesn't have to be used to just run Bitcoin, or even a currency. You can use a blockchain for all sorts of record keeping, kind of like a database, depending on what kind of records you wanted to keep. Lots of people, companies, and governments are interested in blockchain technology as a completely separate concern from Bitcoin.

Block. As mentioned above, all transactions between everyone using Bitcoin are bundled up into units called "blocks" that get added to the blockchain. The whole controversy between the two factions I described is about how big these blocks should be.

Small blocker. Above I talked about people who want to keep "data sizes" down. That's these people. They think one block of data on the blockchain should be 1 megabyte in size, no more.

Big blocker. This refers to a person who believes blocks should increase with size as the system gets used more. Bitcoin Cash currently has blocks that are 8 megabytes in size.

Bitcoin Core, Bitcoin Legacy. These are different terms for what I called "Bitcoin Regular". The terms only exist so long as Bitcoin is split in two. If either Bitcoin Regular or Bitcoin Cash become the standard, then the other is likely to fall out of use, and then all extra terms would be dropped, and Bitcoin would be just "Bitcoin" again.

Side chain. I mentioned that the people you now know as "small blockers" think they can keep block sizes down by having additional services alongside the blockchain. These services are called, predictably enough, "side chain" services.

Segwit. This is one of the side chain services designed to help handle the load while keeping block sizes down. Small blockers want Bitcoin blocks to be one megabyte in size, and Segwit, which stands for "segregated witness" is one way of taking any extra data that won't fit into one megabyte.

Segwit2X. This refers to the compromise system that the two factions agreed upon that neither love, which will come into full force in November. The compromise was that the big blockers would agree to adding Segwit to Bitcoin even though they hate side chain services, and the small blockers agreed to a block size increase to 2 megabytes, even though they hate any increase. So, both sides don't like it, and when they made the agreement, no one knew someone would come along and make Bitcoin Cash. The current status is that the Segwit part of the agreement has been done, and the 2X part is scheduled to happen in November. But now that the big blockers have what they want with Bitcoin Cash, there's some speculation that the 2X part may not happen, or there could be more splits... TL;DR? It's a big clusterfuck and no one knows the future.

BTC. This is the standard code for Bitcoin. It's what you'll see used a lot in terms of conversion to regular currency, as in, "1 BTC = 4,000 USD".

BCC, BCH. These are standardized codes for Bitcoin Cash. There was a little confusion at the beginning about which to use, and now both are. I personally use BCC.

Bcash. This is a term used in kind of a derogatory way by some small blockers to refer to Bitcoin Cash. By not referring to Bitcoin Cash by it's actual name, it's an attempt to delegitimize it. If you ever see someone using the term Bcash, most likely it's someone who has an agenda against Bitcoin Cash. Now and again someone will use it innocently because they've unknowingly adopted it from the people using it maliciously.

Cryptocurrency. The general term for high tech currencies like Bitcoin. The "crypto" part refers to how the whole system relies on computer generated codes too complicated for a human to generate in order validate data and keeping things private. Bitcoin is the best known of this kind of currency. Many others are competing to be as big or bigger than Bitcoin, or at least as real. 90% of them are bullshit scams.

Fiat. This isn't really a term specific to the world of Bitcoin. Fiat is a standard economics term that refers to the kind of currency we all usually deal with, like dollars or Euros or yen. You can look the term up in a dictionary if you want to get into it. I just point it out because I never really used it much before learning about Bitcoin, and now I use it a lot to differentiate between cryptocurrencies and "regular", or "fiat", currencies.

Alt coins. Any cryptocurrency that is not Bitcoin. People who don't like Bitcoin Cash sometimes call it an alt coin to be dismissive. But it's not always used negatively. For instance, some people who run websites where you can buy and sell Bitcoin Cash list it under "alt coins" because they never anticipated they'd need a space on their website for more than one version Bitcoin, and they had to list it somewhere.

Ethereum. The most successful of the few actually legitimate alt coins, and a potential contender to displace Bitcoin if the Bitcoin factionalization ends up destroying Bitcoin. Other than Bitcoin Cash or Bitcoin Regular, this is the only one I've ever considered buying in order to diversify.

Litecoin, Zcash, Monero, Ripple. The only other cryptocurrencies that I generally hear people talking about with a straight face. I stay away from them, but only because I don't need to complicate my life by tracking multiple crazy magic money currencies. Bitcoin is crazy enough already. I'm not advising you one way or the other on buying them.

Mining, miners. All your transactions are bundled with everyone else's into blocks, and those blocks are handed over to miners who use huge warehouses full of computers to calculate that all the transactions are valid. There's a system in place, way too complicated for me to break down for you, to make it so that it's a race to see who can finish working on a block first. The competition means that no one can dominate the system. Anyway, miners are motivated to compete because the one that finishes the latest block first gets to keep the transaction fees. They're called "miners" because they also get a few bonus Bitcoins with every block they successfully work on, so it's kind of like they're breaking blocks and getting Bitcoins out of them.

Mining pools. Huge warehouses full of computers dedicated to working on blocks for the blockchain. Mining pool seems to refer both to the companies that own these warehouses, and to the service of mining that you can buy into if you want. When it's used to refer to the service, it's somewhat synonymous with "cloud mining".

Cloud mining. You can, if you want, pay a company that does Bitcoin mining, and in return you get a share of the profit if that company's mining pool successfully gets a block. There are many companies offering different mining pools and plans to choose from. I don't do this, so I'm in no position to say anything about how profitable or worthwhile it is. I do know one thing, though, which is that if you want to get involved in mining, be sure that the company you go with spells out exactly what your share is, when your payouts are, and nothing is left unsaid. There are mining pools which are a little shady and whatever they don't make clear is money they're pocketing. Also beware of pyramid schemes, where you're encouraged to resell portions of your cloud mining contract.

Hodl. Apparently a long time ago somebody was talking about holding Bitcoins for long term investment and spelled "hold" wrong. The internet being what it is, everyone thought it was funny to keep using the term, and so you'll often see people talking about "hodling" to refer to hanging on to Bitcoins for future returns. It was pointed out to me that the term is symptomatic of people who don't want to see Bitcoin become actually used, they're just speculators with dreams of getting rich easily. I don't know if that's true, but I don't use the term, because I don't want silly internet geek speak involved when I'm talking about money. When it comes to my money, I am cold like a robot, no fucking around.

There ya go. A whole bunch of words that will hopefully make online discussions make more sense to you. One thing I'm not going to get into is naming various people you are bound to hear relentlessly praised and condemned within the world of Bitcoin. Partly because I don't want to get into the cults of personality that turns all discussion into unproductive ad hominem noise, and also because I kind of don't care about the people involved. Or, more accurately, I don't want to care. Part of the point of Bitcoin, to me, is to separate out human interference in what could be a system of pure economic supply and demand. The system is not there yet, it's still buffeted by people and groups with agendas, but, the potential is there, and I think a good step toward less human distortion is to give them less focus.

If you liked what I wrote, you can be a contributor to a brave new world of microeconomic transactions by sending me some Bitcoins (Bitcoin Cash) at the following address! Granted, you'll have to know more about Bitcoin than I've explained here, but, if you're motivated enough to get to the point of actually using Bitcoin to where you want to send me money, get in touch
and I'll walk you through it.

1P9M3FEJM2u21puPmXaMFHSyh2osBryNcH

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